Paragon Office Services LLC et al v. Aetna Inc et al

Filing 240

Memorandum Opinion and Order denying 161 (Document Restricted) Plaintiffs' Motion for Partial Summary Judgment and Memorandum of Law in Support. The parties are to meet and seriously discuss the prospects for settlement and report to the court by Friday, 8/21/2015 whether this action can be resolved without the necessity of a trial. (Ordered by Judge Sam A Lindsay on 7/30/2015) (ykp)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
PARAGON OFFICE SERVICES, LLC,
OFFICE SURGERY SUPPORT
SERVICES, LLC, PARAGON
AMBULATORY PHYSICIAN SERVICES,
P.A., and AMBULATORY HEALTH
SYSTEMS, LLC,

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Plaintiffs,
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v.
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AETNA INC., AETNA HEALTH INC.,
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AETNA HEALTH MANAGEMENT LLC, §
and AETNA LIFE INSURANCE
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COMPANY,
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Defendants.
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Civil Action No. 3:11-CV-1898-L

MEMORANDUM OPINION AND ORDER
Before the court is Plaintiffs’ Motion for Partial Summary Judgment (Doc. 161), filed July
9, 2014. After careful consideration of the motion, response, reply, appendices, evidence, record,
and applicable law, the court denies Plaintiffs’ Motion for Partial Summary Judgment
I.

Factual Background and Procedural History
The court has addressed this lawsuit extensively in prior opinions and, accordingly, assumes

the parties’ familiarity with the relevant facts and procedural history.1 The court incorporates by
reference these prior opinions as if herein fully set forth. In brief, Plaintiffs Paragon Office Services,
LLC (“POS”); Office Surgery Support Services, LLC (“OSS”); Paragon Ambulatory Physician

1

See March 30, 2015 Memorandum Opinion and Order (Doc 235) (granting in part and denying in part
Defendants’ Motion for Summary Judgment); June 27, 2012 Memorandum Opinion and Order (Doc. 45) (denying
Plaintiff’s Motion to Remand).
Memorandum Opinion and Order - Page 1

Services, P.A. (“PAPS”); and Ambulatory Health Systems, LLC (“AHS”) (sometimes collectively,
“Plaintiffs” or the “Paragon Entities”) filed a civil action against Defendants Aetna Inc.; Aetna
Health, Inc. (“AHI”); Aetna Health Management, LLC (“AHM”); and Aetna Life Insurance
Company (“ALIC”) (sometimes collectively, “Defendants” or the “Aetna Entities”) on June 28,
2011, in the 68th Judicial District Court for Dallas County, Texas. Defendants removed the state
court action to this court on the basis that the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. §§ 1001 et seq., completely preempts Plaintiffs’ state law claims. The court
agreed that ERISA preempted at least some of Plaintiffs’ state law claims and denied Plaintiffs’
motion to remand on June 27, 2012. See Mem. Op. & Ord. (Doc. 45).
Plaintiffs include the providers of anesthesia services to obstetricians and gynecologists who
perform in-office surgeries. These services include two components: the professional service
rendered by the anesthesiologist and the technical equipment used by the anesthesiologist to perform
the service. This lawsuit arises from the Aetna Entities’ alleged refusal to pay for equipment used
in providing the anesthesia services. Plaintiffs allege that Defendants have inconsistently covered
equipment services costs, and allege that if such services were performed in a hospital or facility,
all services rendered, including equipment, would be paid in full. In their Second Amended
Complaint, Plaintiffs assert claims for (1) ERISA violations under § 1132(a)(1)(B); (2) ERISA
violations under § 1132(a)(3); (3) breach of implied contracts; (4) Texas Insurance Code violations;
(5) fraud; (6) quantum meruit; (7) unjust enrichment; (8) tortious interference with business
relationships; and (9) estoppel and quasi-estoppel, and also seek attorney’s fees.2 See Pls.’ Sec. Am.
Compl. (Doc. 71). Following the court’s ruling on Defendants’ motion for summary judgment,
2

Plaintiffs’ theft of services claim has been voluntarily dismissed with prejudice by stipulation. See Stipulation
Dismissing Certain of Plaintiffs’ Claims with Prejudice (Doc. 191).
Memorandum Opinion and Order - Page 2

Plaintiffs’ claims have all been dismissed with the exception of Plaintiffs’ claims for ERISA
violations under § 1132(a)(1)(B) with respect to the drugs and supplies; Texas Insurance Code
violations as to the drugs and supplies; and estoppel. See Mem. Op. and Order 57-58 (Doc. 235).3
Following this ruling, Plaintiffs’ sole remaining claims are for alleged ERISA violations under §
1132(a)(1)(B) with respect to the claims for drugs and supplies; Texas Insurance Code violations
as to the drugs and supplies; and estoppel.
Defendant AHI has filed a counterclaim against the Paragon Entities, and a third-party
complaint against Dr. Neal Fisher (“Dr. Fisher”) and Paragon Anesthesia Associates, P.A. See
Defs.’ First Am. Ans. and Aetna Health, Inc.’s First Amended Counterclaim and First Amended
Third Party Complaint (Doc. 56) (“Am. Countercl.”). AHI alleges fraud based on the Paragon
Entities’ alleged improper and duplicative billing practices with regard to submitting claims for
professional services and equipment (id. ¶¶ 32-35), and seeks reimbursement for overpayments
made as a result of those practices to POS, AHS, and PAPS or, alternatively, an offset. Id. ¶¶ 14-31.
Finally, AHI alleges that the corporate veil should be pierced between and among Dr. Fisher and the
Paragon Entities or, alternatively, that Dr. Fisher and the Paragon Entities are alter egos of each
other. Id. ¶¶ 36-40.
On July 9, 2014, Plaintiffs filed a Motion for Partial Summary Judgment. Plaintiffs argue
they are entitled to summary judgment on AHI’s fraud counterclaim, and on AHI’s attempt to pierce
its corporate veil or assert alter ego liability. Paragon also moves for summary judgment on its
affirmative fraud claim. The motion has been fully briefed and is ripe for determination. The court
first sets forth the applicable legal standard.
3

Defendants Aetna Inc. and AHM were dismissed from this lawsuit by the court, which concluded they were
not proper parties. See Mem. Op. and Order 58 (Doc. 235)
Memorandum Opinion and Order - Page 3

II.

Summary Judgment Standard
Summary judgment shall be granted when the record shows that there is no genuine dispute

as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas
Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is “genuine”
if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary
judgment, the court is required to view all facts and inferences in the light most favorable to the
nonmoving party and resolve all disputed facts in favor of the nonmoving party. Boudreaux v. Swift
Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005). Further, a court “may not make credibility
determinations or weigh the evidence” in ruling on a motion for summary judgment. Reeves v.
Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support the
nonmoving party’s case, the party opposing the motion must come forward with competent summary
judgment evidence of the existence of a genuine dispute of material fact. Matsushita Elec. Indus.
Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). On the other hand, “if the movant bears the burden
of proof on an issue, either because he is the plaintiff or as a defendant he is asserting an affirmative
defense, he must establish beyond peradventure all of the essential elements of the claim or defense
to warrant judgment in his favor.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)
(emphasis in original). “[When] the record taken as a whole could not lead a rational trier of fact
to find for the nonmoving party, there is no ‘genuine [dispute] for trial.’” Matsushita, 475 U.S. at
587. (citation omitted). Mere conclusory allegations are not competent summary judgment

Memorandum Opinion and Order - Page 4

evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73
F.3d 1322, 1325 (5th Cir. 1996).

Unsubstantiated assertions, improbable inferences, and

unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19
F.3d 1527, 1533 (5th Cir. 1994).
The party opposing summary judgment is required to identify specific evidence in the record
and to articulate the precise manner in which that evidence supports his or her claim. Ragas, 136
F.3d at 458. Rule 56 does not impose a duty on the court to “sift through the record in search of
evidence” to support the nonmovant’s opposition to the motion for summary judgment. Id.; see also
Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 & n.7 (5th Cir. 1992). “Only disputes over
facts that might affect the outcome of the suit under the governing laws will properly preclude the
entry of summary judgment.” Anderson, 477 U.S. at 248. Disputed fact issues that are “irrelevant
and unnecessary” will not be considered by a court in ruling on a summary judgment motion. Id.
If the nonmoving party fails to make a showing sufficient to establish the existence of an element
essential to its case and on which it will bear the burden of proof at trial, summary judgment must
be granted. Celotex, 477 U.S. at 322-23.
III.

Analysis
Plaintiffs move for summary judgment on AHI’s fraud counterclaim and also on AHI’s

attempt to pierce its corporate veil or consider Dr. Fisher and the Paragon Entities as mere alter egos.
Plaintiffs also move for summary judgment on their affirmative fraud claim. The court first turns
to Plaintiffs’ motion for summary judgment on AHI’s fraud counterclaims.4

4

To the extent Plaintiffs challenge AHI’s standing to assert claims on ALIC’s behalf, the court rejects this
challenge. AHI makes clear it is not attempting to assert claims on behalf of ALIC. See Defs.’ Opp’n Br. at 2 (Doc.
187).
Memorandum Opinion and Order - Page 5

A.

AHI’s Fraud Counterclaim

AHI alleges fraud based on the Paragon Entities’ alleged improper and duplicative billing
practices with regard to submitting claims for professional services and equipment. Am. Countercl.
¶¶ 32-35. The gravamen of AHI’s fraud allegation is that the Paragon Entities intentionally
submitted claims for reimbursement using the wrong billing codes, and that they further engaged
in a scheme to submit fraudulent claims through the use of multiple entities with different Tax
Identification Numbers (“TIN”s).
Plaintiffs move for summary judgment on the fraud counterclaim.
Under Texas law, the elements of fraud are:
(1) that a material representation was made; (2) the representation was false; (3)
when the representation was made, the speaker knew it was false or made it
recklessly without any knowledge of the truth and as a positive assertion; (4) the
speaker made the representation with the intent that the other party should act upon
it; (5) the party acted in reliance on the representation; and (6) the party thereby
suffered injury.
Aquaplex Inc. v. Rancho La Valencia, Inc., 297 S.W. 3d 768, 774 (Tex. 2009).
Plaintiffs argue they are entitled to summary judgment on AHI’s fraud counterclaim because
they can “conclusively negate one or more essential elements of that claim.” Pls.’ Summ. J. Br. 1.
In support, Plaintiffs argue:
The record establishes that Paragon fully informed [AHI] of the exact nature of its
services and did, in fact, provide the services it described. Because it provided
exactly what it said it would, Paragon could not have made any false
statements—and [AHI] could not have justifiably relied upon any allegedly false
statements. Aetna also cannot establish fraud damages because it has not, and
cannot, produce evidence supporting a permissible measure of damage under Texas
law.
Id. at 1-2.

Memorandum Opinion and Order - Page 6

Viewing all evidence in the light most favorable to AHI, the court determines that AHI has
produced competent summary judgment evidence sufficient to create a genuine dispute of material
fact as to whether Paragon knowingly made false representations and whether AHI justifiably relied
on the misrepresentations in processing and paying claims. See, e.g., Def.’s App. 72-73, 76-77, 20103; 222, 226-67. With regard to Plaintiffs’ argument that AHI cannot establish fraud damages
because it has not, and cannot, produce evidence supporting a permissible measure of damage under
Texas law, the court concludes that AHI has complied with Federal Rule of Civil Procedure 26(a)(1)
in its computation of damages, and Plaintiffs can raise this argument at trial.
In sum, because AHI has submitted competent summary judgment evidence sufficient to
raise a genuine dispute of material fact as to the elements of its fraud claim, Plaintiffs’ motion for
summary judgment on this claim will be denied.
B.

Piercing the Corporate Veil/Alter Ego

Plaintiffs move for summary judgment on AHI’s counterclaim alleging the court should
pierce the corporate veil between and among Dr. Fisher and the Paragon Entities or, alternatively,
treat Dr. Fisher and the Paragon Entities as alter egos of each other. AHI alleges in its counterclaim
that Dr. Fisher “created and used limited liability companies and professional associations—
including but not limited to PAA, POS, AHS, PAPS, and/or OSS—in order to perpetrate a fraud by
submitting duplicate and improper claims for reimbursement.” Am. Countercl. ¶ 37. AHI further
alleges that this scheme was carried out “while avoiding or delaying discovery of the improper
billing by using ‘new’ entity and TIN for claims submissions, even though the new entity was
allegedly providing the same services as the previous Paragon Entity whose claims had been
denied.” Id. In the alternative, AHI alleges that Dr. Fisher and the Paragon Entities are the alter

Memorandum Opinion and Order - Page 7

egos of each other. Id. ¶ 38.
In support of summary judgment, Plaintiffs argue that because AHI cannot establish its fraud
claim, Plaintiffs are also entitled to summary judgment on AHI’s veil-piercing argument. See Pls.’
Summ. J. Br. 27-28. Plaintiffs also argue they are entitled to summary judgment on AHI’s alter ego
allegations because “there is zero evidence to establish the criteria necessary for the equitable theory
of alter ego.” Id. at 28. According to Plaintiffs, “Other than common ownership, there is no
evidence of this equitable theory.” Id. at 27.
The Fifth Circuit recently summarized Texas law on piercing the corporate veil of a
corporation or limited liability company, as well as alter-ego principles, stating:
Due to the limited liability that corporations and LLCs offer to their owners, a
plaintiff seeking to impose individual liability on an owner must “pierce the
corporate veil.” Under Texas law, “an assertion of veil piercing or corporate
disregard does not create a substantive cause of action [;] . . . such theories are purely
remedial and serve to expand the scope of potential sources of relief by extending to
individual shareholders of other business entities what is otherwise only a corporate
liability. Veil piercing and “alter-ego” principles apply equally to corporations and
LLCs.
Spring Street Partners-IV, L.P. v. Lam, 730 F.3d 427, 443 (5th Cir. 2013) (internal citations
omitted). Separate corporate structures may be ignored when “the corporate form has been used as
part of a basically unfair device to achieve an inequitable result.” Id.
Viewing all evidence in the light most favorable to AHI, the court determines that AHI has
produced competent summary judgment evidence sufficient to create a genuine dispute of material
fact as to whether Dr. Fisher established the Paragon Entities for the purpose of deceiving AHI
through the use of changing TINs and varied billing schemes and whether Dr. Fisher blurred the
lines between himself and the Paragon Entities such that these entities where nothing more than the
alter ego of Dr . Fisher and one another. See, e.g., Def.’s App. 82, 235-36, 247-49, 257-58. Because
Memorandum Opinion and Order - Page 8

AHI has raised a genuine dispute of material fact as to whether the court should pierce the corporate
veil and/or apply alter ego principles, Plaintiffs’ motion for summary judgment on these allegations
will be denied.
C.

Plaintiffs’ Affirmative Fraud Claim

Plaintiffs move for summary judgment on their affirmative claim for fraud. On March 31,
2015, the court granted summary judgment in Defendants’ favor on Plaintiffs’ fraud claim, and
dismissed the fraud claim with prejudice. See Mem. Op. and Ord. at 58 (Doc. 235). Accordingly,
the court denies as moot Plaintiffs’ motion for summary judgment on their affirmative claim of
fraud. Further, granting the motion would be inconsistent with the ruling previously made regarding
Defendants’ motion.
IV.

Conclusion
For the reasons herein stated, the court denies Plaintiffs’ Motion for Partial Summary

Judgment (Doc. 161). Specifically, as to that portion of Plaintiffs’ motion seeking summary
judgment on AHI’s counterclaim for fraud and related allegations that the corporate veil should be
pierced or, alternatively, that Dr. Fisher and the Paragon Entities are alter egos of each other, the
court denies Plaintiffs’ motion. As to that portion of Plaintiffs’ motion seeking summary judgment
on their affirmative fraud claim, the court denies the motion as moot in light of the court’s previous
decision granting Defendants’ motion for summary judgment and dismissing Plaintiffs’ fraud claim.
In light of the court’s March 30, 2015 decision granting in part and denying in part
Defendants’ Motion for Summary Judgment, and the court’s decision today denying Plaintiffs’
Motion for Partial Summary Judgment, the following claims remain for trial: Plaintiffs’ claim for
alleged ERISA violations under § 1132(a)(1)(B) with respect to drugs and supplies; Plaintiffs’ claim

Memorandum Opinion and Order - Page 9

for alleged violations of the Texas Insurance Code as to the drugs and supplies; Plaintiffs’ estoppel
claim; AHI’s counterclaims for fraud and overpayment, and AHI’s related allegation that the
corporate veil should be pierced between and among Dr. Fisher and the Paragon Entities or,
alternatively, that Dr. Fisher and the Paragon Entities are alter egos of each other.
With this and prior rulings, the claims and issues have been significantly narrowed. This is
an excellent time for the parties to revisit settlement discussions. Moreover, the court granted an
extension in this case in May 2013, based on the parties’ representations that they needed more time
to explore settlement. See Doc. 74 (Agreed Mot. for Continuance); Doc. 77 (Third Am. Sch. Ord.).
Accordingly, the parties are to meet and seriously discuss the prospects for settlement and report to
the court by Friday, August 21, 2015, whether this action can be resolved without the necessity of
a trial. All remaining pretrial deadlines, as well as the trial date, will be set forth in a separate order,
once the parties have advised the court of settlement prospects.
It is so ordered this 30th day of July, 2015.

_________________________________
Sam A. Lindsay
United States District Judge

Memorandum Opinion and Order - Page 10